Govt concerned about bad loans, will monitor large NPAs: FM
New Delhi: Attributing rising bad loans in the banking sector mainly to large borrowers, Finance Minister P Chidambaram on Tuesday said the government will monitor 30 NPA accounts of each PSU bank to recover dues and asserted that the economic situation is not as gloomy as is being painted.
The minister, who reviewed the performance of public sector banks, expressed satisfaction over credit growth and assured the lenders the government will finalise modalities for Rs 14,000 crore of capital infusion within a week.
Seeking to dispel the impression of subdued economic activity, Chidambaram said, "...Things are not as gloomy as sometimes it is painted. There are new proposals, they are being cleared...Things are moving. Thanks to the CCI, PMG and thanks to investors themselves."
Clearance of projects by the Cabinet Committee on Investment (CCI) has spurred lending activity, he said, adding "Even though there is a slowdown, in the current fiscal year we have got 173 new proposals each with over Rs 250 crore investment. These are being processed."
Although rising non-performing assets (NPAs) are a function of economic slowdown, Chidambaram said they are "unacceptable" and banks should beef up efforts by setting up a separate vertical to recover dues from written-off accounts.
"We are monitoring the top 30 NPA accounts in each bank, each zone. It is a matter of concern that it is the big borrowers (with loans of over Rs 1 crore) who are defaulting," Chidambaram said.
The bulk of the NPA was from those who borrowed Rs 1 crore and more, he said, adding, "We have told them to keep a very close watch on these largest accounts and have to recover the amount...I hope recoveries will improve."
As of June, the gross NPA of nationalised banks was 3.89 per cent and State Bank Group at 5.50 per cent of total advances.
Chidambaram said the situation was not as bad as it had been in 2000, when gross NPAs touched a high of 14 percent. The level of bad loans, which plateaued over the years at about 2 percent, started creeping up as growth decelerated in the past few years.
To augment the capital base of various PSU banks, the Finance Ministry also finalised a Rs 14,000 crore capital infusion plan and promised another tranche in the fourth quarter of the current fiscal against concessional lending towards housing, auto and consumer durables.
"...The Rs 14,000 crore will be allocated today and then of course we will sit down with the RBI and Sebi (to decide) the manner of infusion," Chidambaram said.
The minister said housing loans recorded a healthy growth in the first and second quarters and rose by 42 per cent and 61 per cent, respectively.
Growth was also observed in education loans, he said, adding that banks have been asked to meet the lending target with regard to minorities.
The minister said PSU banks will open 10,000 new branches and set up 34,668 on-site ATMs during the course of the current financial year.
Replying to questions on the IMF and World Bank reducing GDP growth forecast for the country, Chidambaram said these are only estimates.
"If I know why the chief economist of IMF and why the chief economist of World Bank cannot agree...I can perhaps become the chief economist of both," he said in a lighter vein.
While the IMF has projected a growth rate of 3.75 percent, the World Bank had pegged it at 4.7 percent. The government expects economic growth to be above 5 percent.
Referring to the current account deficit, Chidambaram said the government does not intend to lift the ban on gold coins and medallions.